Indian pharma companies will face a number of challenges in the US market going ahead including reduced number of big products going off patent, increased competition and rise in regulatory scrutiny, ICRA said today.In 2013 when Ranbaxy, one of India’s oldest drug companies, agreed to the US Department of Justice’s (DOJ’s) charge of wrongdoing in its manufacturing process, a $500 million fine seemed like a small price to pay for what was coming. Ranbaxy became a stick for global competitors of Indian drug companies to beat the industry with the issue of "poor quality".

It seemed that Indian companies would immediately be hit by Ranbaxy’s actions; however, that tide had seemed to have passed, with large Indian drug makers speeding ahead with their growth in US markets because of the free market policy towards price control.

Cut to 2015, when Indian drug makers’ growth hit a speed bump because of manufacturing issues. While a couple of India’s biggest pharma firms have their factories under import alert by the US Food & Drug Administration (USFDA), since November last year, a handful of other companies were put under investigation by the DOJ over alleged cartelisation.

And, with the Donald Trump administration now in the driving seat, Indian pharma has a new problem: while one view is that the US president’s determination to reduce drug prices will benefit Indian pharma’s thrust on affordable generics, it is Trump’s clamour to Make in America that has local drug makers spooked.The Trump Effect

In his first press conference after taking charge as the president, Trump lashed out at the pharma industry in the US, which sent stocks of Indian drug companies in a downward spiral the very next day on Dalal Street, as the possibility of harsh pricing pressure in the most profitable market loomed.

"Our drug industry has been disastrous. They are leaving left and right. They supply our drugs, but they don’t make them here, to a large extent. And the other thing we have to do is create new bidding procedures for the drug industry because they’re getting away with murder," said Trump in January.

Trump added that even though the US is the largest buyer of drugs in the world, the country does not bid properly and it will soon start bidding in a way that would help it save billions of dollars over time. Trump’s protectionist statements are the last thing that Indian drug makers need.They are dealing with a spate of regulatory charges from the USFDA that has wiped out nearly Rs 15 billion worth of market cap of the top five drug companies over the past one year. The companies themselves, though not directly talking about the Trump effect, are preparing for a muted year ahead.

"We continue to have challenges in base and customer business. The market share in the US is linked to your getting new business. So we have to split into market share and market supply," said Dilip Shanghvi, managing director, Sun Pharma, India’s largest drug maker. Sun Pharma, which gets nearly 45 per cent of its revenue from the US, posted a 5 per cent drop in its net profit to Rs 1,472 crore in the quarter ended December 2016.The US market sales registered a 4 per cent growth to $507 million in that period. "There are three key policies that have been mentioned in speeches and campaign documents: Removing restrictions on sale of pharmaceutical drugs manufactured outside the US Repealing Affordable Care Act (ACA). And allowing Medicare to negotiate pricing.

Of the three, while the first is a positive for generics, the last two will be negative for them. We believe the key focus will be on repealing ACA," wrote analysts from brokerage firm Jefferies in their impact report on Trump and Indian pharma.

Even Dr Reddy’s had a similar outlook. "We continue to face headwinds for our US business, delay in approvals of major launches coupled with erosion of our base business," said Abhijit Mukherjee, chief operating officer of Dr Reddy’s in the company’s earning calls in early February.

If this was not all, the price cartelisation investigation of the DOJ is an overhang that companies have to watch out for. Research by brokerage firm IIFL shows that leading Indian generic drug makers have their own share of "super inflated generics" as companies have hiked the price of their drugs anywhere between 150 per cent and 800 per cent in the US markets.

Some have been smart to sense the storm and been cautious over increasing the prices, as data shows that the number of super-inflating generics has declined from a peak level of 247 in August 2014 to a historical low of 60 in August 2016.

Down But Not Out

DG Shah, secretary general of the Indian Pharmaceutical Alliance (IPA), the lobby group of leading Indian drug companies, reckons the worries might be overblown. "The bureaucracy in the US would advise that China and India cannot be antagonised, so it is unlikely that the Trump administration would be hard on India." He adds that Indian companies’ investments in the US have jumped six-fold over the past five years and created jobs too. "We save US healthcare $80 billion in healthcare expenditure."

According to the USFDA’s own data, 40 per cent of drugs consumed in the US come from India. India exports close to $13 billion or close to Rs 70,000 crore worth of drugs across the world, a fifth of which are to the US. There are nearly 200 USFDA-approved manufacturing plants in India, and over the last few years although the agency has tightened its presence in the country by increasing its inspection staff, the number of new product approvals that Indian companies have received have also doubled.

But analyst are also being cautious. Once touted as the defensive stock for investors, the pharma sector seems have to become a selective play. In the last three quarters brokerage firms have revised their guidelines. Their concerns are USFDA inspection and slow approval rates.

The IPR Bully

The macro worries of a trade tussle over intellectual property rights (IPR) is an old sore point between the US and India. The US Trade Representative (USTR) continues to corner India over its intellectual property (IP) laws, India was once again included in Special 301 of the USTR which considers India’s IP as a barrier to American businesses.

In a tennis match of sorts, both countries keep trading barbs over IP, but with a new administration in the US, how this will pan out is yet another matter of uncertainty. The Indian government, meanwhile, is firmly behind its industry and laws.

"Those who are making these (allegations) are not challenging that there is any violation of trade-related intellectual property. Some countries are trying to push the regime to TRIPS + but that is what we are not signatory to. Our commitment is to TRIPS, and that is the position we have maintained," Sudhanshu Pandey, joint secretary, commerce ministry, told ET last week.

Trade-Related Aspects of IPR, or TRIPS, lays down minimum standards for IP regulation for WTO member countries. TRIPs+ is a collection of higher standards of protection that some countries — not India — have agreed to.Pandey also thinks that the brouhaha over quality issues is overplayed in the media, as he thinks Indian companies are "honest" in their approach. On the possibility of a trade war between India and the US, the Indian pharma lobby thinks if at all there is one it could be with countries like Mexico and China. "I doubt if the US would want a trade war with India, considering we recently bought arms worth $15 billion from the US," points out Shah.

Even as a clutch of mid-size pharma companies like Glenmark persist with their plans to build manufacturing units in the US (see "We Will Manufacture More in the US"), they’re also stepping up the pace in emerging markets. Russia, a few parts of Latin America and Japan are where these companies are moving their focus to. And, of course, there is always the domestic turf, where relatively lax regulations and an envious monopoly ensure that MNC Big Pharma has to play second fiddle.

With immense pride “India Live” celebrated its 10th national conference in Mumbai from 28th February to 3rd March 2019. The conference turned out to be a gold mine of information, with emphasis on academics, education and exchange of knowledge with leaders in interventional cardiology from both India and abroad.